Rev. Rul. 88-86

1988-2 C.B. 358, 1988-41 I.R.B. 1.

                       Internal Revenue Service

                                 Revenue Ruling

                 INTEREST RATES; UNDERPAYMENTS AND OVERPAYMENTS

                         Published: September 27, 1988

Section 6621. -- Determination of Rate of Interest, 26 CFR. 301.6621-1: Interest rate

  Interest rates; underpayments and overpayments. The rate of interest determined under section 6621 of the Code for the calendar quarter beginning October 1, 1988, will increase to 10 percent for overpayments and 11 percent for underpayments.

  Section 6621 of the Internal Revenue Code establishes differential rates for allowance of interest on tax overpayments and assessment of interest on tax underpayments. Under section 6621(a)(1), the overpayment rate is the sum of the short-term federal rate plus 2 percentage points. Under section 6621(a)(2), the underpayment rate is the sum of the short-term federal rate plus 3 percentage points.

  Section 6621(b)(1) of the Code provides that the Secretary shall determine the short-term federal rate for the first month in each calendar quarter.

  Section 6621(b)(2)(A) of the Code provides that the federal short-term rate determined under section 6621(b)(1) for any month shall apply during the first calendar quarter beginning after such month.

  Section 6621(b)(3) of the Code provides that the federal short- term rate for any month shall be the federal short-term rate determined during such month by the Secretary in accordance with section 1274(d), rounded to the nearest full percent (or, if a multiple of 1/2 of 1 percent, the rate shall be increased to the next highest full percent).

  Notice 88-59, 1988-20 I.R.B. 30, announced that in determining the quarterly interest rates to be used for overpayments and underpayments of tax under section 6621 of the Code, the Internal Revenue Service will use the federal short-term rate based on daily compounding because that rate is most consistent with section 6621 which, pursuant to section 6622, is subject to daily compounding.

  Rounded to the nearest full percent, the federal short-term rate based on daily compounding determined during the month of July 1988 is 8 percent. Accordingly, an overpayment rate of 10 percent and an underpayment rate of 11 percent is established for the calendar quarter beginning October 1, 1988. The rates apply to amounts bearing interest during that calendar quarter.

  Interest factors for daily compound interest for annual rates of 10 percent and 11 percent were published in Tables 40 and 41 of Rev. Proc. 83-7, 1983-1 C.B. 583, 624, 625.

  Annual interest rates to be compounded daily pursuant to section 6622 of the Code that apply for prior periods are set forth in the accompanying table.

                              DRAFTING INFORMATION

  The principal author of this revenue ruling is Mary Jane Kossar of the Individual Tax Division. For further information regarding this revenue ruling contact Mrs. Kossar on (202) 566-3626 (not a toll-free call).

               TABLE OF ANNUAL INTEREST RATES

              PERIOD                 RATE  DAILY RATE TABLE

                                            IN 1983-1 C.B.

     OVERPAYMENTS AND UNDERPAYMENTS

January 1, 1983 - June 30, 1983       16%  Table 22, pg. 605

July 1, 1983 - December 31, 1983      11%  Table 17, pg. 600

January 1, 1984 - June 30, 1984       11%  Table 41, pg. 625

July 1, 1984 - December 31, 1984      11%  Table 41, pg. 625

January 1, 1985 - June 30, 1985       13%  Table 19, pg. 602

July 1, 1985 - December 31, 1985      11%  Table 17, pg. 600

January 1, 1986 - June 30, 1986       10%  Table 16, pg. 599

July 1, 1986 - December 31, 1986       9%  Table 15, pg. 598

              Overpayments

January 1, 1987 - March 31, 1987       8%  Table 14, pg. 597

April 1, 1987 - June 30, 1987          8%  Table 14, pg. 597

July 1, 1987 - September 30, 1987      8%  Table 14, pg. 597

October 1, 1987 - December 31, 1987    9%  Table 15, pg. 598

January 1, 1988 - March 31, 1988      10%  Table 40, pg. 624

April 1, 1988 - June 30, 1988          9%  Table 39, pg. 623

July 1, 1988 - September 30, 1988      9%  Table 39, pg. 623

October 1, 1988 - December 31, 1988   10%  Table 40, pg. 624

              Underpayments

January 1, 1987 - March 31, 1987       9%  Table 15, pg. 598

April 1, 1987 - June 30, 1987          9%  Table 15, pg. 598

July 1, 1987 - September 30, 1987      9%  Table 15, pg. 598

October 1, 1987 - December 31, 1987   10%  Table 16, pg. 599

January 1, 1988 - March 31, 1988      11%  Table 41, pg. 625

April 1, 1988 - June 30, 1988         10%  Table 40, pg. 624

July 1, 1988 - September 30, 1988     10%  Table 40, pg. 624

October 1, 1988 - December 31, 1988   11%  Table 41, pg. 625

Rev. Rul. 88-86, 1988-2 C.B. 358, 1988-41 I.R.B. 1.